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Grist: Mom Pop: Please Read

Who better to defend nepotism than the son of an internationally famous author? In praise of Adam Bellow's new book.
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America worships at the altar of the family. Well, almost.

Politicians of every genus can't seem to get enough of it. Speechwriters use it like salt. But when it comes to the role of families in business, we get all nervous.

What makes us queasy isn't the first heroic entrepreneurial generation. They're cool. But we get paranoid when their companies grow up and go public. Many remain convinced that family-run businesses are private sandboxes, serving personal interests first. And then there's the matter of the next generations, the whole hereditary principle thing. Not to mention the stereotype of the lucky sperm club frittering away its fortune in orgies of decadence and profligacy.

Not so, says Adam Bellow, who offers a head-torquing revisionism in his recent book In Praise of Nepotism. Bellow argues that there is a misguided "war" against the advantages of kinship. Once we get beyond our knee-jerk meritocracy and look at the fully nuanced picture, Bellow believes that "nepotism works, it feels good, and it is generally the right thing to do." And he marshals an impressive array of supporting evidence -- biological, historical, and economic.

A recent study published in the June 2003 issue of the Journal of Finance confers statistical legitimacy on Bellow. When authors Ronald C. Anderson and David M. Reeb examined the performance of Standard & Poor's 500 Index stocks, they found that companies that have retained founding-family ownership have done better than nonfamily companies. The findings, according to Anderson and Reeb, contradict "anecdotal accounts and prior literature [suggesting that]continued family-founding ownership in U.S. corporations is an organizational form that leads to poor performance." What's the secret sauce of family firms? The authors point to a focus on investing for the long term, a reluctance to manipulate current earnings, and the fact that concentration of ownership "mitigates managerial opportunism."

Yet family firms remain ghettoized by business academics. Examined less as models of accomplishment than for their curiosity value, they sit at the margin. The Weatherhead School at Case Western Reserve University unabashedly notes that "in 1991, the H.R.H. Family Foundation established an endowment...to support the family business programs of the Weatherhead School of Management." Such programs help family businesses manage issues such as succession planning, but they don't propagate their management practices -- a focus on long-term thinking and the sanctity of reputation, for example -- into the greater business culture. That's a big loss.

What's more, rather than seeing family businesses as role models, we are legislating the life out of them. A recent CNBC report noted that "public companies will be required to have a simple majority of outside or independent directors, people who have no blood or business relationships with the firm." As if that's bad. Meanwhile, blundering advocacy groups are desperate to destroy this miraculously effective ecosystem. CNBC further reports: "The Investor Responsibility Research Center has identified nearly 140 examples of corporations in the Standard & Poor's 500, small and mid-cap indexes that have directors who are related to other directors or employees."

We've been trained -- since Frederick Winslow Taylor and his theory of scientific management -- that businesses are machines, agnostic to personality and passion. If that were the case, family-run businesses wouldn't outperform those run by the M.B.A.-executive recruiter axis.

Investor groups should be arguing for more family control, not less. As "Grist" goes to press, the financial pages are reporting that Sandy Weill will be replaced by his handpicked successor, Charles O. Prince. Is there any doubt that Prince's primary accomplishment is his own bureaucratic survival? Meanwhile, Jessica Bibliowicz, Weill's daughter, left Citigroup a few years back because Daddy wouldn't promote her. Probably nepotism anxiety. My guess is that the shareholders would be better off with Jessica.

Contributor Adam Hanft (ahanft@inc.com) is president of Hanft Byrne Raboy, a Manhattan-based advertising and marketing firm.




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